GME INNOTAINMENT, INC. - Annual Report: 2013 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 333-139008
GREAT CHINA MANIA HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Florida
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59-2318378
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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Room 1902, 19/F., Kodak House II, 321 Java Road, Hong Kong
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 852-3543-1208
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share
Indicate by check mark if registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ¨ No x
The aggregate market value of the registrant's voting stock held by non-affiliates (2,725,028 shares) of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter based upon the per share closing price of $1.12 on June 28, 2013 was approximately $3,052,031.
As of April 11, 2014 there were 25,695,742 shares of the issuer’s common stock outstanding.
Documents incorporated by reference: None
TABLE OF CONTENTS
In this report, unless the context indicates otherwise, the terms “Company,” “we,” “us,” and “our” refer to Great China Mania Holdings, Inc., a Florida corporation, and its wholly-owned subsidiaries for the period ending December 31, 2013.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934 or the “Exchange Act.” These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results.
In some cases, you can identify forward looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management's current expectations and belief, which management believes are reasonable. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including:
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new competitors are likely to emerge and new technologies may further increase competition;
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our operating costs may increase beyond our current expectations and we may be unable to fully implement our current business plan;
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our ability to obtain future financing or funds when needed;
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our ability to successfully obtain and maintain our diverse customer base;
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our ability to protect our intellectual property through patents, trademarks, copyrights and confidentiality agreements;
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our ability to attract and retain a qualified employee base;
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our ability to respond to new developments in technology and new applications of existing technology before our competitors;
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acquisitions, business combinations, strategic partnerships, divestures, and other significant transactions may involve additional uncertainties; and
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our ability to maintain and execute a successful business strategy.
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Other risks and uncertainties include such factors, among others, as market acceptance and market demand for our products and services, pricing, the changing regulatory environment, the effect of our accounting policies, potential seasonality, industry trends, adequacy of our financial resources to execute our business plan, our ability to attract, retain and motivate key technical, marketing and management personnel, and other risks described from time to time in periodic and current reports we file with the United States Securities and Exchange Commission, or the “SEC.” You should consider carefully the statements under “Item 1A. Risk Factors” and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.
Introduction
The Great China Mania Holdings, Inc. (“GMEC or the “Company”) was incorporated in Florida on July, 1983. In February, 2011, three new subsidiaries of GMEC were formed in Hong Kong. These subsidiaries are Great China Media limited (“GCM”), Great China Game Limited (“GCG”), and GME Holdings Limited (“GMEH”) (which operates an artist and artist management business). In June 2011, a new subsidiary GMEC Ventures Limited (“GMEV”), a Hong Kong company, was formed and maintained for holding future investments.
Due to the change of business strategy and focus, GMEC sold the assets and operations of GCG and GCM on April 23, 2013 and May 6, 2013, respectively. GMEC has since focused on developing and maintaining the business of entertainment, artist management, movie productions, movie acquisitions and movie distributions in order to capture the growing business opportunities in Hong Kong, China and the Asia-Pacific region. In January, 2014, GMEC formed a subsidiary, GME Distribution Workshop Limited (“GMED”), to manage and maintain the movie-related businesses in Asia.
Current Corporate Structure
As of the date of this filing, the corporate structure is as follows:
The Company owns one wholly owned subsidiary named Super China Global Limited (BVI). Super China Global Limited (BVI) has four subsidiaries: 1) GMEH, which was incorporated on February 18, 2011; 2) GMEV, which was incorporated on June 1, 2011, 3) Number 5 Asia Management Limited (“#5”), which was incorporated on December 30, 2013 and 4) GMED, which was incorporated on January 24, 2014.
General Description of Current Business
GMEC is an artist management and entertainment company headquartered in Hong Kong with talents located all over the Asia. GMEC’s major businesses include artist management, event management, movie productions, movie distributions, movie acquisitions, music publishing, TV series productions, show businesses and merchandising licensing. GMEC has built a trusted brand in the entertainment industry that creates high-quality commercial entertainments. GMEC’s businesses are spread all over Hong Kong, China and Asia-Pacific countries. GMEC has appointed sales representatives in Beijing (China), Guangzhou (China) and Malaysia to expand and manage the businesses coverage.
GMEC consists of two main business segments: 1) GMEH, an artist management company and 2) GMED, a movie production, distribution and acquisition company. Since 2013, GMEC has participated in movie production and distribution for the action movie named “Kick Ass Girls”. In order to manage the movie business efficiently and effectively, GMEC established a new business unit, GMED, to focus on the operations of movie-related businesses. On January 14, 2014, to synergize with and leverage on GMEC’s existing businesses, GMEC entered into an agreement with C&M Film Workshop Limited (“C&M”). According to the agreement, GMEC acquired from C&M all of its overseas distribution agreements giving GMEC rights to distribute those movies overseas. To maintain the continuous growth of the movie business, GMEC has also engaged Mr. Charlie Wong, one of the most famous movie producers and distributors in Hong Kong, to head the new business unit over the next 5 years.
To capture the growing opportunities of artist management and movie businesses in the region, GMEC has positioned GMEH and GMED as its main business segments.
Products and services
GMEH
GMEH currently manages 18 female artists and 7 male artists in Hong Kong, China, Malaysia and Australia.
The profiles of the artists GMEH currently manages:
Female:
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1.
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Chrissie Chau
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http://www.gmegroup.com.hk/index.php/talents/artist/chrissie
Chrissie Chau is a Chinese actress and celebrity model from Hong Kong. Chau achieved widespread fame after the release of her portrait albums in 2009 and 2010. Her film career began after her starring in the horror film Womb Ghosts (2009); Chau starred in more than 20 movie productions in Hong Kong, Taiwan and Malaysia. She is also the spokesperson of numerous brands such as Bossini, KFC (Hong Kong) and Shu Uemura.
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2.
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Jeana Ho
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http://www.gmegroup.com.hk/index.php/talents/artist/jeana
Jeana Ho is a Chinese actress and celebrity model from Hong Kong. She has starred in more than 10 movies in Hong Kong and Malaysia. She has participated in numerous commercial advertisements for brands such as Coca-Cola, Sony and Samsung mobile.
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Mia Chan
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http://www.gmegroup.com.hk/index.php/talents/artist/mia
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Cheuk Wan Chi
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http://www.gmegroup.com.hk/index.php/talents/artist/g
Cheuk Wan Chi is a creative artist who has participated in various positions in the entertainment industry such as movie director, actress, stand-up comedian and radio disc jockey.
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5.
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Dada Lo
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http://www.gmegroup.com.hk/index.php/talents/artist/dada
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6.
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Hidy Yu
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http://www.gmegroup.com.hk/index.php/talents/artist/hidy
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7.
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Coco Yuen
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http://www.gmegroup.com.hk/index.php/talents/artist/coco
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8.
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Waye
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http://www.gmegroup.com.hk/index.php/talents/artist/waye
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9.
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Kabby Hui
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http://www.gmegroup.com.hk/index.php/talents/artist/kabby
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10.
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Suki Wong
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http://www.gmegroup.com.hk/index.php/talents/artist/suki
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11.
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Anna Kay
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http://www.gmegroup.com.hk/index.php/talents/artist/anna-kay
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Hailey C
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http://www.gmegroup.com.hk/index.php/talents/artist/hailey
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Emily Lim
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http://www.gmegroup.com.hk/index.php/talents/artist/emily
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14.
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Bao
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http://www.gmegroup.com.hk/index.php/talents/artist/bao
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15.
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Chris Tong
Lok Yan Ming
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http://www.gmegroup.com.hk/index.php/talents/artist/chris
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17.
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Lok Yan Wa
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18.
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Cathryn Lee
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She is a gifted pianist and is one of Li Yundi’s (a World class classical pianist) favorite students. In 2014, she became GMEH’s artist.
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Male:
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Alex To
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http://en.wikipedia.org/wiki/Alex_to
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Alex To is a Hong Kong and Taiwan based singer and actor. He is the winner of the 4th annual New Talent Singing Awards in 1985. He has released numerous albums throughout his career and mainly has R&B influenced songs
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Dominic Ho
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http://www.gmegroup.com.hk/index.php/talents/artist/dominic
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La Ying
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http://www.gmegroup.com.hk/index.php/talents/artist/la-ying
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KitJ
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http://www.gmegroup.com.hk/index.php/talents/artist/kit-j
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Ben Yeung
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http://www.gmegroup.com.hk/index.php/talents/artist/ben
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King Chiu
Frank Fan
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http://www.gmegroup.com.hk/index.php/talents/artist/king
http://zh.wikipedia.org/zh-hk/%E8%8C%83%E6%A4%8D%E5%81%89
Frank Fan is a Taiwanese actor and artist which has participated in numerous movies and TV-series. He won the best actor award in the 24th Festival des 3 Continents.
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During 2013, GMEH has arranged its artists to participate in the following activities for revenue generations:
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Movie participations
GMEH’s artists are involved in a variety of major movie projects all over the Asia-Pacific area. One of the GMEH’s missions is to discover and train new generation of actors and actresses.
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‘Kick Ass Girls’ By Chrissie Chau, Cheuk Wan Chi, Hidy Yu and Dada Lo http://goo.gl/txyPAe
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'Journey to The West ' by Chrissie Chau http://goo.gl/BQ5qm
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‘Mr. & Mrs. Player’ by Chrissie Chau http://goo.gl/Ym7HPl
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‘Lan Kwai Fong 3’ by Jeana Ho http://goo.gl/NiWg4N
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‘May We Chat’ by Kabby Hui http://goo.gl/irlrkv
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TV series participations
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'X-Girls' By Chrissie Chau http://goo.gl/r09LPo
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Music and record productions
GMEC has set up music division for music projects. GMEC has gathered creative solo singers and groups from Hong Kong and China, GMEC aims to introduce fresh elements to the local music industry.
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MV ‘Dream” Lok Yan Ming and Lok Yan Wa @SiS http://goo.gl/3g14XH
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Live concerts in Hong Kong by Alex To (August 2014)
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World Tour live concerts by Alex To (1st & 2nd quarter 2015)
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Promotional events for brands and institutional customers
GMEH has accumulated rich experience in hosting and producing concerts and live shows.
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The Chippendales Asia Tour HK 2013 http://goo.gl/nJH7cK
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Opening Ceremony of Kowloon Watch Co. at i-Square by Chrissie Chau http://goo.gl/cfo5Lq
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Hong Kong Jockey Club Racing Specialist by Chrissie Chau http://goo.gl/lEWNs2
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San Miguel Light Beer Promotion event by Chrissie Chau http://goo.gl/GrU8cH
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San Miguel Light Beer Promotion event by Jeana Ho and Mia Chan http://goo.gl/K3fuvd
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Comedy show ‘One night Stand’ by Cheuk Wan Chi http://goo.gl/yuIf7m
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Spokesperson
Chrissie Chau was chosen as the spokesperson of Hong Kong's largest electronics retailers 'Citylink' http://goo.gl/oNYnL
Chrissie Chau was chosen as the spokesperson of a giant brand of women’s underwear and consumer goods ‘LA MIU’ in China http://goo.gl/78fmC
Chrissie Chau was chosen as the sole spokesperson of Kentucky Fried Chicken ("KFC") and its signature "Japanese Burger" in Hong Kong http://goo.gl/nzNzBE
Cheuk Wan Chi was chosen as the spokesperson of an famous energy drink ‘Shark’ in Hong Kong http://goo.gl/tOjiZO
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Artist – related merchandising
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A crossover series of women’s underwear named as “Chrissie Series” by Chrissie Chau and famous women’s underwear brand LA MIU was launched
http://www.lamiu.com/article_847.html
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GMED
Movie Production
It is the process of making a film. Filmmaking involves a number of discrete stages including an initial story, idea, or commission, through scriptwriting, casting, shooting, editing, and screening the finished product before an audience that may result in a film release and exhibition.
Movie Distribution
It is the process through which a movie is made available to watch for an audience by a film distributor. This task may be accomplished locally and overseas in a variety of ways; for example, with a theatrical release, a home entertainment release (in which the movie is made available on DVD-Video or Blu-ray Disc) or a television program for broadcast syndication and may include digital distribution. For commercial projects, film distribution is usually accompanied by film promotion.
GMEC has participated in various movie projects targeting in Chinese-speaking markets. The collaboration with the Malaysia’s leading cinema exhibitor and distributor, Golden Screen Cinemas Sdn Bhd, has opened one of the largest Chinese-speaking markets for GMEC’s movie business. Success of the movie “Kick Ass Girls” assures GMEC’s ambition in the Asia-Pacific movie markets.
Movie projects in 2013 and 2014
“Kick Ass Girls” (2013) http://www.youtube.com/watch?v-BpMNHp1qa58
“Girls Police Academy” (scheduled to be shown in the 4th quarter of 2014)
GMED receives shared revenue from:
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Movie Box office receipts.
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Movie production fees.
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Royalty rights from various distribution channels (includes selling of VCDs/DVDs, broadcasting by free televisions, pay televisions online platforms and airline platforms)
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Merchandises derived from GMED’s movies.
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Advertising incomes by offering product placements and sponsorship opportunities in GMED’s movies.
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Target customers
GMEH
Since the majority of its artists appeal to adolescents and young generation, GMEH’s target customers are:
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Adolescents and young adults; and
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Brand owners and institutional customers who target adolescents and young adults as their end customers
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KFC
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http://www.kfchk.com
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Bossini
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http://www.bossini.com
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LA MIU
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http://www.lamiu.com
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Giordano
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http://www.giordano.com.hk
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Citylink
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http://www.citylink.com.hk
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Funamedia
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http://www.funamedia.com
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Mega-Vision Pictures Limited http://www.thefilmcatalogue.com/catalog/CompanyDetail.php?id=3041
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China 3D Digital Entertainment Limited
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http://www.china3d8078.com
GMED
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Cinema-goers from Hong Kong, China and Asia-Pacific region.
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Movie investors who target cinema-goers in Hong Kong, China and Asia-Pacific region.
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Cinema circuits in Hong Kong, China and Asia-Pacific region.
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Providers of broadcasting channels (e.g. Televisions, internet platforms, airline platforms)
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Industry and Market Environment
Entertainment
China's entertainment and media income is expected to grow 12 percent compounded annually in the next few years to reach US$192.5 billion by 2016. The booming of China's entertainment and media sector in the next few years will be pushed by China's economic expansion, government support as well as injection of industry funds hoping to cash in on increasing consumer spending. Artists or celebrities help to attract more audiences towards advertisements, brands, products, or promotional events. Artist management companies can offer artist or celebrities with various talents, attributes and attitudes to the brands and companies targeting the huge China’s market. Also, driven by the growth in entertainment industry (includes movies, media, theme parks…etc.) in China, there is huge demand on talents and artists in the market. Therefore, artist management companies can capture the growing business opportunities in the region.
Movie
Hong Kong has a dynamic film entertainment industry. Its film talent and professionals have managed to make their names known in both Eastern and Western movie markets. Hong Kong is one of the world's film exporters. In 2012, 52 locally produced films were released, with about US $26 million worth of film exports in the form of videotapes, DVDs and other compact discs. Hong Kong's film industry as a whole is reliant on overseas revenues, given the limited size of the domestic market. Asia accounts for the majority of the foreign sales income. In recent years, the Chinese mainland has become a vital market for Hong Kong movies.
Major Competitors
The Company has two major prevailing competitors in Hong Kong, specifically: China 3D Digital Entertainment Limited (“China 3D”) and Pegasus Entertainment Holdings Limited (“Pegasus”).
China 3D (Website: http://www.china3d8078.com) is a publicly trading company listed on the Growth Enterprise Market of The Hong Kong Stock Exchange (“GEM”) stock code: 8078 . During 2012, China 3D reported a total revenue of approximately $2.2 million and a net loss of $1.5 million.
The expertise of China 3D is production of movies, acquisition of movie right and movie distribution. During 2012, they have produced and distributed several successful movies with record breaking box offices revenues. Looking forward in 2014, they will continue to develop their businesses of entertainment and movie productions for the Hong Kong and China markets. They are in direct competition with GMEC’s movie business as GMEC plans to enter into the movie production and distribution rights business in 2014.
Pegasus (http://www.pegasusmovie.com) is also a publicly trading company listed GEM stock code: 8039. Pegasus has an established brand name in the China movie market especially in comedy genre. They have successfully acquired the theatrical distribution right and arranged the showing in Hong Kong and Macau for "Lost in Thailand", a wonderful comedy, who has grossed box office receipts over $190 million in China, setting the highest record of China box office receipts by a Chinese language movie. They are also in direct competition with GMEC on the movie production and movie distribution rights business in Hong Kong and China market.
Competitive Advantages
The management has identified several competitive factors in the industry:
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Management experience
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Business relationship in the industry
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Client relationship
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Relationship with theater networks within the region
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Solid experiences in movie productions and distributions.
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GMEC believes its management team has competitive advantages over these competitive factors:
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GMEC’s CEO and his management team has over 13 years experiences in this industry including over 10 years working experience in the largest entertainment company in Hong Kong.
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GMEC’s management team has an excellent relationship with TV channels, printed media, electronic media operators and theater network operators.
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GMEC’s CEO and his team have over 10 years’ experiences in establishing client relationship to organize and handle promotional events.
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GMEC’s management team has over 10 years’ working relationship with 2 major theater chains operators in Hong Kong to distribute movies in Hong Kong
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GMEC has appointed personnel with expertise in movie productions and distributions to head and manage the movie business unit.
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Business development
Looking forward in 2014, GMEC will expand through its movie production and movie distribution related businesses and through acquisitions.
Movie production and distribution
GMEC plans to expand its current movie production and movie distribution businesses through establishing a division to specifically manage and operate all the projects related to movie productions and distributions. Therefore, GMEC has formed a new subsidiary company, GMED, as the business unit for movie-related projects and businesses. GMEC has also appointed an expert who is rich-experienced in the movie industry especially in the field of movie productions and distributions.
Acquisitions
The Company plans to acquire businesses that can synergize with the existing operations. Potential candidates include:
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Other talents and artist management companies in China and Asia.
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Other movie production and distribution companies in China.
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Theater management companies in China
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Total
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CEO
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General & Administration
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Operation
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30 | |||
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Sales and broker
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Total
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Sales and Marketing
GMEC’s marketing team works on building positive images for its artists and presenting artists’ talents and attributes to our clients. This has helped GMEC to appeal to many brands, institutional customers, movie or TV program directors and producers to adopt its artists to promote their brands, participate in marketing events, campaigns, movies and entertainment projects. GMEC has 5 senior brokers in a public relations agency and production house to arrange and book model jobs for clients. GMEH’s Assistant General Manager and Marketing Manager are responsible for negotiating with television and film production units for artists’ participations in such.
Before you invest in our common stock, you should be aware that there are risks, as described below. You should carefully consider these risk factors together with all of the other information included in this prospectus before you decide to purchase shares of our common stock. Any of the following risks could adversely affect our business, financial condition and results of operations. We have incurred substantial losses from inception while realizing limited revenues and we may never generate substantial revenues or be profitable in the future.
Competition in this industry could result in us losing market share and charging lower prices for services, which could reduce our revenue.
We predominately compete in the fashion model management industry with numerous competitors, from large multi-national companies to local and boutique agencies. We also compete in the general talent management industry. “Talent” means any model, entertainer, artist, athlete or other talent or celebrity. We endeavor to secure product endorsement contracts from branded consumer products companies for talent represented by us.
In many of our markets, our competitors may possess greater resources, greater name recognition, greater geographic reach and longer operating histories than us, which may give competitors an advantage in obtaining future clients and attracting qualified models and other talent in their markets. Increased competition may lead to, among other things, loss of business and market share and pricing pressures that could negatively impact our business.
In addition, because one of our principal assets is people, and freedom of entry into the model management business is almost unlimited, a small agency may, on occasion, be able to develop business with our clients, particularly if the small agency is successful in recruiting other successful talent.
Our prospects and financial results may be adversely affected if we fail to identify, sign and retain quality talent.
We are dependent on identifying, signing and retaining models and other talent who are well received by clients and are likely to generate repeat business. Our competitive position is dependent on our continuing ability to attract and develop talent whose work can achieve a high degree of client acceptance. Our financial results may be adversely affected if we are unable to identify, sign and/or retain such talent under terms that are economically attractive to us. Our business would be adversely affected by any of the following:
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inability to recruit new models;
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the loss of popularity of models among clients;
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increased competition to maintain existing relationships with models;
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non-renewals of current agreements with models; and
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poor performance or negative publicity of models.
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In addition, the fashion model industry is a youthful business, and models’ careers are inherently limited in length. The loss or maturing of talent, particularly key talent responsible for significant gross billings, negatively impacts us. If we are unable to replace lost talent, including by successfully recruiting or developing new talent, our business will suffer. New talent is also important for us to continually show talent alternatives to clients, who regularly seek new “looks”.
We have relied upon our ability to enforce contracts entered into by models and other talent we represent. If we are unable to protect and enforce our contractual rights, we may suffer a loss of revenue.
Our success depends, to a large degree, on our current talent under management and, in the future, scouting new talent and entering into new contracts. To protect our contractual rights, we have traditionally vigorously defended our contractual rights vis-à-vis models and other talent, as well as other agencies and companies, for both financial reasons and to encourage ongoing strict adherence to contracts by all models and other talent. Such strict enforcement through litigation and other legal means could result in substantial costs and diversion of resources and the potential loss of contractual rights, which could impair our results of operations and financial condition.
If we are unable to retain key management personnel or hire additional skilled personnel, we may not be able to successfully manage our business in the future.
Our key management personnel and their skills and relationships with clients are among our most important assets. An important aspect of our competitiveness is our ability to attract and retain key management personnel, and our future success depends upon the continued service or involvement of key management personnel. If we lose the services of one or more of our key management personnel, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. The loss of the services of any of our key management personnel or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations.
In addition to retaining key existing management personnel, our future success may also depend on our ability to identify, attract, hire, train, and motivate other highly skilled management, agents and administrative personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or motivate sufficiently qualified personnel. The failure to attract and retain the necessary personnel could have a material adverse effect on our business.
If we are unable to maintain our professional reputation and brand name, our business will be harmed.
We strongly depend on our overall reputation and brand name recognition, which we believe is strong in the industry, to secure new engagements and to sign qualified talent. Our success also depends on the individual reputations of the talent that we represent. In addition, any adverse effect on our reputation might negatively impact our businesses, which is driven largely by the value of the Company’s brand. If any client is dissatisfied with our services, this may adversely affect our ability to secure new engagements.
If any factor, including poor performance, hurts our reputation, we may experience difficulties in competing successfully for both new client engagements and qualified talent. Failing to maintain our professional reputation and the goodwill associated with our brand name could seriously harm our business.
Our revenue and net income may be affected by adverse economic conditions.
Recessions may impact gross billings for modeling services. An important segment of the modeling industry is advertising, with advertising assignments typically generating amongst the highest daily fees in the business. Because advertising expenditures are viewed by companies as discretionary and are curtailed during economic downturns, agency gross billings may also decline over recessionary periods. There can be no assurance that current economic conditions will improve or even remain stable. Our business, financial condition and results of operations could suffer if economic conditions weaken.
If some of our clients experience financial distress, their weakened financial position could negatively affect our financial position and results.
We have a diverse client base, and at any given time, one or more of our clients may experience financial distress, file for bankruptcy protection or go out of business. If any client with whom we have a substantial amount of business experiences financial difficulty, it could delay or jeopardize the collection of accounts receivable, may result in significant reductions in services provided by us and may have a material adverse effect on our financial position, results of operations and liquidity.
We may undertake acquisitions to expand our business, which may dilute the ownership of existing stockholders.
As we pursue our business plan, we may pursue acquisitions of businesses, both domestic and international. International acquisitions in particular would permit us to expand our global footprint. To finance any acquisitions however, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on favorable terms or at all, and, in the case of equity financings, would result in additional dilution to existing stockholders. If we acquire any business and are unable to integrate the newly acquired entities effectively, our business and results of operations may suffer. The time and expense associated with finding suitable and compatible businesses or services could also disrupt our ongoing business and divert management’s attention. Future acquisitions by us could result in large and immediate write-offs or assumptions of debt and contingent liabilities, any of which could substantially harm our business and results of operations.
Any acquisitions that we attempt or complete could prove difficult to integrate or require a substantial commitment of management time and other resources.
Any strategy of acquiring other businesses involves a number of unique risks including: (i) completing due diligence successfully, (ii) exposure to unforeseen liabilities of acquired companies and (iii) increased risk of costly and time-consuming litigation, including stockholder lawsuits. If we pursue acquisitions, we may be unable to address these problems successfully. Moreover, our future operating results will depend to a significant degree on our ability to integrate acquisitions (if any) successfully and manage operations while also controlling our expenses. Integrating newly acquired businesses or services is likely to be expensive and time consuming. We may be unable to select, manage or absorb or integrate any future acquisitions successfully, particularly acquisitions of large companies. Any acquisition, even if effectively integrated, may not benefit our stockholders.
We may need additional debt or equity to sustain growth, but we do not have commitments for such funds.
We may need to finance future growth through a combination of borrowings, cash flow from operations, and equity financing. Our ability to continue growing at the pace we have recently grown could depend in part on our ability to obtain either additional debt or equity financing. The terms on which debt and equity financing is available to us varies from time to time and is influenced by our performance and by external factors, such as the economy generally and developments in the market, which are beyond our control. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail our growth by delaying new initiatives. While we maintain a credit facility, our efforts to secure significant funds through debt financing have not been successful and, given the cautiousness of banks following the 2008 downturn, do not look likely in the foreseeable future.
Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products or services as a result.
We are not aware of any claims of infringement or challenges to our right to use any of our trademarks in the U.S. Nevertheless, we could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. Given that proprietary rights to photography, artwork and similar intellectual property rights are a fundamental part of marketing in the fashion and technology industry, we may be exposed at times to claims with respect to such rights. Such claims, even if not meritorious, can be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and cease displaying, offering or selling works, products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms. We may also be required to indemnify licensees and customers if they become subject to third-party claims relating to intellectual property that they license or otherwise provide to them, which could be costly.
We may not be able to adequately protect our media rights (including any intellectual property rights we have or may acquire).
Portions of our business rely on media and intellectual property. Protecting these rights is difficult. Piracy may adversely affect our revenue, particularly in countries where laws are less protective of such rights. Further, reductions in the legal protection for intellectual property rights could adversely affect revenue.
Our future results could be materially adversely affected if it is found to have infringed on intellectual property rights.
Technology companies, including many of our subsidiaries’ competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. Although we have not encountered any intellectual property rights claims against it, as the Company grows, the intellectual property rights claims against it may increase.
Regardless of the scope or validity of such claims by potential or actual litigants, we may have to engage in litigation. If we are found to infringe any patents, it may be required to pay substantial damages. If there is a temporary or permanent injunction prohibiting us from marketing or selling certain products or a successful claim of infringement against us requiring it to pay royalties to a third-party, its financial condition and operating results could be materially adversely affected, regardless of whether it can develop non-infringing technology. In certain cases, we may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our operating expenses.
We may experience outages, data loss, and disruptions with the technology related to our services.
Inefficiencies or operational failures, including temporary or permanent loss of customer data, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, damage to our reputation and loss of current and potential customers, each of which may harm our operating results and financial condition.
Investment in new business strategies and initiatives could disrupt our ongoing business and present risks not originally contemplated.
We have invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses associated with the strategy, inadequate return of capital, and unidentified issues not discovered in the Company’s due diligence. These new ventures are inherently risky and may not be successful. They may materially adversely affect our financial condition and operating results.
Risks Relating to Business in Hong Kong
Substantially all of our assets are located in Hong Kong and substantially all of our revenues are derived from our operations in Hong Kong. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and legal developments in Hong Kong.
The economic, political and social conditions, as well as governmental policies, could affect the financial markets in Hong Kong and our liquidity and access to capital and our ability to operate our business.
The Hong Kong economy differs from the economies of most countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. While the Hong Kong economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The Hong Kong government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Hong Kong economy, but may also have a negative effect on us. This may encourage foreign advertising companies with more experience, greater technological know-how and larger financial resources than we have to compete against us and limit the potential for our growth. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
The Hong Kong legal system embodies uncertainties which could limit the legal protections available to you and us.
The Hong Kong legal system is a civil law system based on written statutes. The overall effect of legislation over the past 26 years has significantly enhanced the protections afforded to various forms of foreign investment in Hong Kong. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since Hong Kong administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, particularly with regard to the advertising industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our suppliers.
If tax benefits currently available to us in Hong Kong were no longer available, our effective income tax rates for our Hong Kong operations could increase.
We generate a substantial portion or all our net income from our Hong Kong operations. Our net income could be adversely affected by any change in the current tax laws in Hong Kong.
The Hong Kong tax authorities may require us to pay additional taxes in connection with our acquisitions of offshore entities that conducted their Hong Kong operations through their affiliates in the United States.
Our operations and transactions are subject to review by the Hong Kong tax authorities pursuant to relevant Hong Kong laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, in the case of some of our future acquisitions of offshore entities that conduct their Hong Kong operations through their affiliates in the United States, we cannot assure you that the Hong Kong tax authorities will not require us to pay additional taxes in relation to such acquisitions, in particular where the Hong Kong tax authorities take the view that the previous taxable income of the Hong Kong affiliates of the acquired offshore entities needs to be adjusted and additional taxes be paid. In the event that the sellers failed to pay any taxes required under Hong Kong law in connection with these transactions, the Hong Kong tax authorities might require us to pay the tax, together with late-payment interest and penalties.
Hong Kong rules on mergers and acquisitions may subject us to sanctions, fines and other penalties and affect our future business growth through acquisition of complementary business.
We cannot assure you that the relevant Hong Kong government agency approval required for any issuance of our stock will be deemed legal. We may face sanctions by the Hong Kong regulatory agencies. In such event, this regulatory agency may impose fines and penalties on our operations in the Hong Kong, limit our operating privileges in the Hong Kong, delay or restrict the repatriation of the proceeds from any future sales of our stock into Hong Kong, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.
Complying with the requirements of rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the appropriate securities agency, may delay or inhibit the completion of such transactions, which could affect our ability to expand our business or maintain our market share.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
Substantially all of our revenues and operating expenses are denominated in Hong Kong dollars. Since a significant amount of our future revenues will be denominated in Hong Kong dollars, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in United States dollars (“USD”) to fund our business activities outside Hong Kong, if any, or expenditures denominated in foreign currencies. This could affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans.
Fluctuations in exchange rates could result in foreign currency exchange losses.
Appreciation or depreciation in the value of the Hong Kong dollar relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. The Hong Kong dollar may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Hong Kong dollar against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.
Any future outbreak of severe acute respiratory syndrome or avian flu in Hong Kong, or similar adverse public health developments, may severely disrupt our business and operations.
From December 2002 to June 2003, Hong Kong and other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new cases of SARS have been reported, most recently in central Hong Kong in April 2004. During May and June of 2003, many businesses in Hong Kong were closed by the Hong Kong government to prevent transmission of SARS. In addition, many countries, including Hong Kong, have encountered incidents of the H5N1 strain of bird flu, or avian flu. This disease, which is spread through poultry populations, is capable in some circumstances of being transmitted to humans and is often fatal. A new outbreak of SARS or an outbreak of avian flu may result in health or other government authorities requiring the closure of our distributor’s offices or other businesses, including office buildings, retail stores and other commercial venues, which comprise the primary locations where we provide our digital out-of-home advertising services. Any recurrence of the SARS outbreak, an outbreak of avian flu or a development of a similar health hazard in Hong Kong, may deter people from congregating in public places, including a range of commercial locations such as office buildings and retail stores. Such occurrences would severely impact the value of our digital out-of-home advertising networks to advertisers, significantly reduce the advertising time purchased by advertisers and severely disrupt our business and operations.
Risks Associated with Our Stock
Our shares are listed for trading on the OTC Bulletin Board, and our shares will likely be classified as a “penny stock” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price less than $5.00. Our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
We are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
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·
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Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
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Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
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Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks;
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Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.
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Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
We do not anticipate paying dividends on our common stock in the foreseeable future, which may limit investor demand.
We do not anticipate paying any dividends on our common stock in the foreseeable future. Such lack of dividend prospects may have an adverse impact on the market demand for our common stock as certain institutional investors may invest only in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their ability to invest in our common stock.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting us or our competitors. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Sales of substantial amounts of our common stock in the public market could depress the market price of our common stock.
The sale of a substantial amount of common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to decline.
The OTC Bulletin Board, or the OTCBB, is a quotation system, not an issuer listing service, market or exchange. Therefore, buying and selling stock on the OTCBB is not as efficient as buying and selling stock through an exchange. As a result, it may be difficult for you to sell your common stock or you may not be able to sell your common stock for an optimum trading price.
The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities. Our common stock is traded on the OTC QX Marketplace, or OTCQX, which is the trading tier on the OTCBB with the most demanding listing standards. Nevertheless, because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
Financial Industry Regulatory Authority, or FINRA, sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must, after conducting a thorough due diligence review of a customer’s financial condition, have reasonable grounds for believing that the investment is suitable for that customer. Special rules on recommending speculative low priced securities to non-institutional customers require broker-dealers to make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other relevant financial information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. These FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and may have an adverse effect on the market for our shares.
There has been no independent valuation of the stock, which means that the stock may be worth less than the purchase price.
This valuation of our stock is highly speculative and arbitrary. There is no relation to the market value, book value, or any other established criteria. We did not obtain an independent appraisal opinion on the valuation of the shares.
Investors may never receive cash distributions which could result in an investor receiving little or no return on his or her investment.
Distributions are payable at the sole discretion of our board of directors. We do not know the amount of cash that we will generate, if any, once we have more productive operations. Cash distributions are not assured, and we may never be in a position to make distributions.
Even if a market develops for our shares, our shares may be thinly traded with wide share price fluctuations, low share prices and minimal liquidity.
If a market for our shares develops, the share price may be volatile with wide fluctuations in response to several factors, including: potential investors’ anticipated feeling regarding our results of operations; ·increased competition; our ability or inability to generate future revenues; and market perception of the future of development of wood product manufacturing.
In addition, if our shares are quoted on the OTCBB, our share price may be affected by factors that are unrelated or disproportionate to our operating performance. Our share price might be affected by general economic, political, and market conditions, such as recessions, interest rates, or international currency fluctuations. In addition, even if our stock is approved for quotation by a market maker through the OTCBB, stocks traded over this quotation system are usually thinly traded, highly volatile and not followed by analysts. These factors, which are not under our control, may have a material effect on our share price.
We anticipate the need to sell additional authorized shares in the future. This will result in a dilution to our existing shareholders and a corresponding reduction in their percentage ownership in the Company.
We may seek additional funds through the sale of our common stock. This will result in a dilution effect to our shareholders whereby their percentage ownership interest in the Company is reduced. The magnitude of this dilution effect will be determined by the number of shares we will have to issue in the future to obtain the funds required. The sale of additional stock to new shareholders will reduce the ownership position of the current shareholders. The price of each share outstanding common share may decrease in the event we sell additional shares.
Since our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our shares are “penny stocks” and are covered by Section 15(d) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. For sales of our securities, the broker/dealer must make a special suitability determination and receive from its customer a written agreement prior to making a sale. The imposition of the foregoing additional sales practices could adversely affect a shareholder's ability to dispose of his stock.
Not Applicable.
The following properties are leased by the Company and the Subsidiaries:
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Entity
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Locations and addresses
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Areas
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Rent
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Leasing period until
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Owner
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GMEC Ventures Limited
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Suite 1902, 19/F., Tower II, Kodak House, Quarry Bay, Hong Kong
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2,853 square feet
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$6,949 per month
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July 27, 2014
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Vision China Limited
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To the knowledge of our management, there is no litigation currently pending or contemplated against us or any of our officers or directors in their capacity as such.
Not applicable.
Our common stock has been traded on the Over the Counter Bulletin Board (OTCBB) since May 22, 2008 and changed to the symbol “GMEC” on March 16, 2011. The following table sets forth the high and low bid information for our common stock from January 1, 2012 through March 31, 2014, as reported by OTCBB. The Company’s common stock underwent a 1 for 20 reverse stock split on January 7, 2014, and the data for the first quarter of 2014 reflects that corporate event.
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Period
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Low ($)
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High ($)
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2014 First Quarter
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$
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1.00
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$
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1.63
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2013 Fourth Quarter
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$
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0.82
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$
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1.40
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2013 Third Quarter
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$
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0.83
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$
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1.90
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2013 Second Quarter
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$
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0.20
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$
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1.60
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2013 First Quarter
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$
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0.40
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$
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2.20
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2012 Fourth Quarter
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$
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0.80
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$
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4.40
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2012 Third Quarter
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$
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2.00
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$
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8.00
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2012 Second Quarter
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$
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1.42
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$
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13.00
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2012 First Quarter
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$
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0.80
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$
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9.00
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Number of Holders of Common Stock
The number of holders of record of our common stock on April 11, 2014 was 63.
Dividends
There were no cash dividends or other cash distributions made by us during the fiscal year ended December 31, 2012 or 2013. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends is within the discretion of our board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Recent Sales of Unregistered Securities and Use of Proceeds
On October 1, 2013, the Company issued 53,769 shares of its common stock to a creditor upon conversion of a promissory note. These shares were exempt from registration under Rule 144 of the Securities Act.
On October 1, 2013, the Company issued 25,000 shares to its legal counsel in exchange for legal services rendered pursuant to an Engagement Agreement.
On October 17, 2013, the Company issued 14,993 shares to an investor relations firm as compensation.
On November 12, 2013 the Company issued 16.949 shares to an investor relations firm as compensation.
On November 26, 2013, the Company issued 500,000 shares of common stock pursuant to an Agreement with New Era Global Enterprises Limited.
On January 14, 2014, the Company entered into a Purchase and Assignment Agreement (the “Agreement”) with C&M Film Workshop Limited (“C&M”) whereby C&M is the legal and beneficial owner of certain overseas movie and entertainment distribution agreements. According to the terms of the Agreement, C&M assigned the rights to distribute all movies purchased overseas to the Company in consideration of 20,000,000 shares of restricted common stock paid to C&M’s sole shareholder. These shares were issued in consideration for the assignment of the distribution agreements.
On January 12, 2014, the Company issued 39,721 shares to an investor relations firm as compensation.
Repurchases of Equity Securities
None.
Equity Compensation Plan Information
None.
As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K.
Note regarding forward looking statements
This annual report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “the Company believes,” “management believes” and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.
Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, specifically Forms 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Except as otherwise indicated by the context, references in this Form 10-K to “we”, “us”, “our”, “the Registrant”, “our Company” or “the Company” are to Great China Mania Holdings, Inc., a Florida corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar”, “$” and “US$” are to United States dollars; (iv) “HKD” are to the Hong Kong Dollar; (v) “Securities Act” are to the Securities Act of 1933, as amended; and (vi) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“US GAAP”). US GAAP requires the use of estimates, assumptions, judgments, and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revenue represents the invoiced value of goods sold or services rendered during the year, net of sales discounts and returns. Generally revenue is recognized when all of the following criteria are met:
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-
|
Persuasive evidence of an arrangement exists,
|
|
-
|
Delivery has occurred or services have been rendered,
|
|
-
|
The seller’s price to the buyer is fixed or determinable, and
|
|
-
|
Collectability is reasonably assured
|
Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
|
(i)
|
Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered.
|
|
(ii)
|
Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined agreements.
|
|
(iii)
|
Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.
|
For discontinued operations, the Company recognizes revenue when the following criteria are met:
|
(i)
|
Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers.
|
|
(ii)
|
Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales return.
|
|
(iii)
|
Revenue from the provision of advertising services is recognized when services are rendered.
|
|
(iv)
|
Revenue from retail sales of video games and accessories is recognized upon delivery of goods to customers.
|
Recent Accounting Pronouncements
The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2013. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2013 through the date these financial statements were issued.
Results of Continued Operations – Year Ended December 31, 2013, as Compared to Year Ended December 31, 2012.
The following table summarizes the results of our continued operations during the year ended December 31, 2013 and 2012, and provides information regarding the dollar and percentage increase or (decrease) from the year ended December 31, 2012 to the year ended December 31, 2013.
|
2013
|
2012
|
Increase (decrease)
|
% Change
|
|||||||||||||
|
Revenue
|
$ | 2,310,329 | $ | 1,931,005 | $ | 379,324 | 19.64 | % | ||||||||
|
Cost of sales
|
1,562,252 | 1,282,555 | 279,697 | 21.81 | % | |||||||||||
|
Gross profit
|
748,077 | 648,450 | 99,627 | 15.36 | % | |||||||||||
|
Sales & marketing
|
51,330 | 43,182 | 8,148 | 18.87 | % | |||||||||||
|
General & administrative
|
1,648,016 | 986,138 | 661,878 | 67.12 | % | |||||||||||
|
Loss of impairment of asset
|
15,000 | - | 15,000 | 100.00 | % | |||||||||||
|
Loss from operations
|
(966,269 | ) | (380,870 | ) | (585,399 | ) | 153.70 | % | ||||||||
|
Other income (expense)
|
(162,098 | ) | (50,027 | ) | (112,071 | ) | 224.02 | % | ||||||||
|
Provision for taxation
|
- | - | - | N/A | ||||||||||||
|
Net loss from continuing operations
|
$ | (1,128,367 | ) | $ | (430,897 | ) | $ | (697,470 | ) | 161.86 | % | |||||
Revenues
Sales revenue increased by $379,324 to $2,310,329 for the year ended December 31, 2013 as compared to $1,931,005 for 2012, representing a 19.64% increase. The increase in revenue was mainly due to the increase of $454,779 by the artists’ performances in promotional events for brands and institutional customers and $8,978 by artist-related merchandising and shared profit of intellectual property rights offset by the decrease of $84,433 by the artists’ performances in TV shows.
Cost of sales
Cost of sales increased by $279,697 to $1,562,252 for the year ended December 31, 2013 as compared to $1,282,555 for 2012, representing a 21.81% increase. The increase was mainly due to the increase of artist fee by $24,040, events promotion expenses by $151,798, agency fee by $36,146 and other direct cost by $67,713.
Gross margin
Gross margin increased by $99,627 to $748,077 for the year ended December 31, 2013 as compared to $648,450 for 2012, representing a 15.36% increase. The increase was mainly due to the increase of the institutional promotion events boost up the both of the revenue volume and gross margin.
Sales & marketing expenses
Sales & marketing expenses increased by $8,148 to $51,330 for the year ended December 31, 2013 as compared to $43,182 for 2012, representing an 18.87% increase. The increase was mainly due to the increase of 1.) Advertising expenses by $6,090 and 2.) Entertainment expenses by $12,034 offset by the decrease of travelling expenses by $9,976.
General and administrative
The following table summarizes general and administrative expenses during the year ended December 31, 2013 and 2012, and provides information regarding the dollar and percentage (increase) / decrease from the year ended December 31, 2012 to the year ended December 31, 2013.
|
2013
|
2012
|
(Increase) decrease
|
%Change
|
|||||||||||||
|
Payroll cost
|
473,495 | 471,854 | 1,641 | 0.35 | % | |||||||||||
|
Rental expenses
|
119,842 | 140,774 | (20,932 | ) | (14.87 | %) | ||||||||||
|
Legal and professional fee
|
1,007,548 | 334,255 | 673,293 | 201.43 | % | |||||||||||
|
Miscellaneous
|
47,131 | 39,255 | 7,876 | 20.06 | % | |||||||||||
| 1,648,016 | 986,138 | 661,878 | 67.12 | % | ||||||||||||
Payroll cost increased by $1,641 to $473,495 for the year ended December 31, 2013 as compared to $471,854 for 2012, representing a 0.35% increase. The payroll cost remained stable in both 2012 and 2013.
Rental expenses decreased by $20,932 to $119,842 for the year ended December 31, 2013 as compared to $140,774 for 2012, representing a 14.87% decrease. The decrease was mainly due to saving in closure of Beijing office in September 2012.
Legal and professional fee increased by $673,293 to $1,007,548 for the year ended December 31, 2013 as compared to $334,255 for 2012, representing a 201.43% increase. The increase was mainly due to an increase of 1) business development consultation fee by $653,900 2) legal consultation fee by $8,965 and 3) legal related disbursement by $10,428. During the year ended December 31, 2013, legal and professional fee included a non cash expenses totaling $833,900. The non cash expenses included business development consultation fee $653,900, legal consultation fee $40,000 and investor relationship expenses $140,000.
Miscellaneous expenses increased by $7,876 to $47,131 for the year ended December 31, 2013 as compared to $39,255 for 2012, representing a 20.06% increase. The increase was mainly due to the increase of accounts receivable written off by $6,434 and the other general expenses by $1,442 in aggregate.
Net loss from continuing operations
Net loss from continuing operations increased by $697,470 to a net loss of $1,128,367 for the year ended December 31, 2013 as compared to $430,807 for 2012.
Liquidity and Capital Resources
Cash
Our cash balance as of December 31, 2013 was $640,383, representing an increase of $465,722 as compared to $174,661as of December 31, 2012.
Cash flow
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2013 amounted to $22,876 compared to net cash used in $108,988 in the same period of 2012. The change of $131,874 was mainly due to an increase of 1.) accrued expenses and other payables by $183,585, 2.) accrued interest expense of convertible notes by $29,168 and, 3.) prepaid expense by $4,940, offset the increase of accounts receivable by $87,866.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2013 amounted to $85,760 compared to net cash used in investing activities of $0 for 2012. The change of $85,760 was primarily due to the purchase of other asset by $115,380 offset re repayment of short-term loan receivable by $29,620.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2013 amounted to $528,606 compared to net cash provided by financing activities of $54,837 for 2012. The change of $473,767 was mainly due to an increase in settlement of subscription receivable $474,350 offset the decrease of net proceeds from convertible notes $6,540.
Working capital
Our net asset increased by $1,100,270 to $607,998 as of December 31, 2013 from net current liabilities of $492,272 as of December 31, 2012.
As of December 31, 2013 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Results of Discontinued Operations – Year Ended December 31, 2013, as Compared to Year Ended December 31, 2013.
The following table summarizes the results of our discontinued operations during the year ended December 31, 2013 and 2012, and provides information regarding the dollar and percentage increase or (decrease) from the year ended December 31, 2012 to the year ended December 31, 2013.
|
2013
|
2012
|
Increase (decrease)
|
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
GCM
|
524,020 | 2,238,117 | (1,714,097 | ) | (76.59 | %) | ||||||||||
|
GCG
|
- | 643,473 | (643,473 | ) | (100.00 | %) | ||||||||||
| 524,020 | 2,881,590 | (2,357,570 | ) | (81.81 | %) | |||||||||||
|
Cost of sales
|
||||||||||||||||
|
GCM
|
497,389 | 1,475,726 | (978,337 | ) | (66.30 | %) | ||||||||||
|
GCG
|
- | 593,818 | (593,818 | ) | (100.00 | %) | ||||||||||
| 497,389 | 2,069,544 | (1,572,155 | ) | (75.97 | %) | |||||||||||
|
Gross profit
|
||||||||||||||||
|
GCM
|
26,631 | 762,391 | (735,760 | ) | (96.51 | %) | ||||||||||
|
GCG
|
- | 49,655 | (49,655 | ) | (100.00 | %) | ||||||||||
| 26,631 | 812,046 | (785,415 | ) | (96.72 | %) | |||||||||||
|
General & administrative
|
501,571 | 913,409 | (411,838 | ) | (45.09 | %) | ||||||||||
|
Loss from operations
|
(474,940 | ) | (101,363 | ) | (373,577 | ) | 368.55 | % | ||||||||
|
Other income (expense)
|
(2,304 | ) | (2,227 | ) | (77 | ) | 3.46 | % | ||||||||
|
Provision for taxation
|
- | - | - | N/A | ||||||||||||
|
Net (loss)/income from continuing operations
|
||||||||||||||||
|
GCM
|
(473,153 | ) | (51,730 | ) | (421,423 | ) | 814.66 | % | ||||||||
|
GCG
|
(4,091 | ) | (51,860 | ) | 47,769 | (92.13 | %) | |||||||||
| $ | (477,244 | ) | $ | (103,590 | ) | $ | (373,654 | ) | 360.30 | % | ||||||
Revenues
Revenues decreased by $2,357,570 to $524,020 for the year ended December 31, 2013 as compared to $2,881,590 for 2012. The decreases were mainly due to the decrease in revenue from GCM and GCG operations.
Sales revenue of GCM decreased by $1,714,097 to $524,020 for the year ended December 31, 2013 as compared to$2,238,117 for 2012, representing a 76.59% decrease. The decrease in revenue was mainly due to the fact that GCM disposed on May 6 2013 and therefore there was only 4 months figure in 2013 as compared to 12 months figure in 2012.
Sales revenue of GCG decreased by $643,473 to $0 for the year ended December 31, 2013 as compared to $643,473 for 2012, representing a 100.00% decrease. The decrease in revenue was mainly due to the closure of retail shop in December 2012.
Cost of sales
Cost of sales decreased by $1,572,155 to $497,389 for the year ended December 31, 2013 as compared to $2,069,544 for 2012. The increase was mainly due to the decreases in cost of sales from GCM and GCG operations.
Cost of sales of GCM decreased by $978,337 to $497,389 for the year ended December 31, 2012 as compared to$1,475,726 for 2012, representing a 66.30% decrease. The decrease was mainly due to the fact that GCM was disposed on May 6 2013 and therefore there was only 4 month cost of sales in 2013 as compared to 12 months figure in 2012.
Cost of sales of GCG decreased by $593,818 to $0 for the year ended December 31, 2013 as compared to $593,818 for 2012, representing a 100.00% decrease. The decrease in cost of sales was mainly due to the closure of retail shop in December 2012.
Gross margin
Gross margin increased by $785,415 to $26,631 for the year ended December 31, 2013 as compared to $812,046 for 2012. The increases were mainly due to decreases of gross margin from GCM and GCG operations.
Gross margin of GCM decreased by $735,760 to $26,631 for the year ended December 31, 2013 as compared to $762,391 for 2012, representing a 96.51% decrease. The decrease was mainly due to the fact that GCM was disposed on May 6 2013 and therefore there was only 4 month gross margin in 2013 as compared to 12 months figure in 2012.
Gross margin of GCG decreased by $49,655 to $0 for the year ended December 31, 2013 as compared to $49,655 for 2012, representing a 100.00% decrease. The decrease was mainly due to the closure of retail shop in December 2012.
General and administrative
The following table summarizes general and administrative expenses during the year ended December 31, 2013 and 2012, and provides information regarding the dollar and percentage (increase) / decrease from the year ended December 31, 2012 to the year ended December 31, 2013.
|
2013
|
2012
|
(Increase) decrease
|
%Change
|
|||||||||||||
|
Payroll cost
|
463,001 | 719,992 | (256,991 | ) | (35.69 | %) | ||||||||||
|
Rental expenses
|
25,640 | 127,338 | (101,698 | ) | (79.86 | %) | ||||||||||
|
Legal and professional fee
|
212 | 2,050 | (1,838 | ) | (89.66 | %) | ||||||||||
|
Miscellaneous
|
12,718 | 64,029 | (51,311 | ) | (80.13 | %) | ||||||||||
| 501,571 | 913,409 | (411,838 | ) | (45.09 | %) | |||||||||||
Payroll cost decreased by $256,991 to $463,001 for the year ended December 31, 2013 as compared to $719,992 for 2012, representing a 35.69% decrease. The decrease was mainly due to the fact that GCM and GCG disposed on May 6 2013 and 23 April 2013 respectively therefore there was only 4 month payroll cost in 2013 as compared to 12 months figure in 2012.
Rental expenses decreased by $101,698 to $25,640 for the year ended December 31, 2013 as compared to $127,338 for 2012, representing a 79.86% decrease. The decrease was mainly due to the fact that GCM and GCG were disposed on May 6 2013 and April 23 2013 respectively therefore there was only 4 month rental expense in 2013 as compared to 12 months figure in 2012.
Miscellaneous expenses increased by $55,765 to $12,718 for the year ended December 31, 2013 as compared to $64,029 for 2012, representing a 80.13% decrease. The decrease was mainly due to the fact that GCM and GCG were disposed on May 6 2013 and April 23 2013 respectively therefore there was only 4 month miscellaneous expense in 2013 as compared to 12 months figure in 2012.
Net loss from discontinued operations
Net loss from discontinued operations decreased by $373,564 to a net loss of $477,244 for the year ended December 31, 2013 as compared to $103,590 for 2012.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements
Inflation
Inflation has not had a material impact on our business and we do not expect inflation to have an impact on our business in the near future.
As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K.
The response to this item is included in a separate section of this Annual Report. See “Index to Consolidated Financial Statements” on Page F-1.
On March 26, 2014, we dismissed Albert Wong & Co CPA, Inc. (“Wong”) as our independent registered public accounting firm, and appointed DKM Certified Public Accountants (“DKM”), as disclosed on our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 27, 2014. In connection with the change in accountants, there have been no disagreements as required by this item.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Accounting Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2013. Our management, including our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2013.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer, chief financial officer, and principal accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In connection with management's assessment of our internal control over financial reporting, we identified the following material weakness in our internal control over financial reporting as of December 31, 2013:
|
1.
|
Insufficient accounting personnel with the appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted in the United States commensurate with financial statement reporting requirements.
|
As a result, we have concluded that our internal controls over financial reporting are not effective as of December 31, 2013.
Remediation of Material Weakness in Internal Control
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation. In addition, any evaluation of effectiveness for future periods is subject to the risk that controls may become inadequate because of changes in conditions in the future.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
To remediate the material weakness surrounding this, we have performed and are continuing to perform, among others, the following actions:
|
•
|
additional training of our accounting personnel by our independent accountants of the proper format and compilation of data for US GAAP financial statements; and
|
|
•
|
additional coordination with our local accountants and auditors to strengthen our controls in an attempt to supplement the additional training of our employees.
|
Changes in Internal Control over Financial Reporting
There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2013 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
Item 9B. Other Information
None.
At December 31, 2013, and up to the date of this filing, our directors and executive officers are as follows:
|
Name
|
Age
|
Position
|
||
|
Kwong Kwan Yin Roy
|
38
|
CEO, CFO and Director
|
||
|
Yum Ka Yan
|
35
|
Director
|
Mr. Kwong Kwan Yin Roy, age 38, received his education at Poly University Hong Kong. He joined Hong Kong Television Broadcasts Limited in 1997, where he was responsible for variety and music shows and became familiar with the operation of the electronic media. He joined Hong Kong Emperor Entertainment in 2000, where he was responsible for corporate promotion of music, film, and production. Mr. Kwong has experience in advertising, corporate matters and brand building. In 2004, he successfully formed an alliance between California Red Group (a karaoke operator) with NEWAY (a karaoke operator) and Emperor Group. During his experience at Emperor Group, Mr. Kwong organized a number of large-scale publicity projects including work for the top artist in Hong Kong and China. Mr. Kwong was appointed as CEO and CFO of the company on January 14, 2013.
Ms. Yum Ka Yan, age 35, received her education at University of Hong Kong. Ms. Yum joined Edko Films Limited in 2005, where she was responsible for marketing and promotion of movies and cinema opening; she joined Emperor Motion Pictures in 2007, where she was promoted to Assistant Marketing Manager, which she responsible for marketing and promotion planning of movie productions. Ms. Yum has experience in advertising, marketing and publicity planning. She participated in marketing and publicity campaigns in various blockbuster titles: Lust, Caution (2007), Spider Man 3 (2007), Curse of Golden Flower (2006) and Brokeback Mountain (2005). She joined the company in 2011 and appointed as director on January 14, 2013.
Corporate Governance
Number and Term of Directors
We currently have two directors of the Company. All directors of our company hold office until the next annual meeting of our shareholders and until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal. The above table sets forth the names, positions and ages of our executive officers and directors. Our board of directors elects officers and their terms of office are at the discretion of our board of directors.
Audit Committee
We do not currently have an Audit Committee but plans to form one as soon as practicable.
Other Committees
None.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions in accordance with applicable federal securities laws. The Code was filed as Exhibit 14 to our Registration Statement on Form SB-2 (Registration No. 333-139008) on November 29, 2006. ).
Changes in Director Nomination Process for Stockholders
None.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our directors, executive officer and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission. Our directors, executive officer and persons who own more than 10% of our common stock are required by Securities and Exchange Commission regulations to furnish to us copies of all Section 16(a) forms they file. To our knowledge, based solely upon a review of the copies of such reports furnished to us, our directors, executive officer or persons who own more than 10% of our common stock were complied with the beneficial ownership reporting requirements of Section 16(a).
The following table sets forth all cash compensation paid or to be paid by us, as well as certain other compensation paid or accrued, during each of our last two fiscal years to each of the following named executive officers (the “Named Executive Officers”):
EXECUTIVE OFFICERS COMPENSATION
|
Name & Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change in Pension value and Non- qualified Compensation earning
($)
|
All other Compensation
($)
|
Total
($)
|
|
Kwong Kwan Yin
|
2013
|
70,766
|
0
|
0
|
0
|
0
|
0
|
32,306
|
103,072
|
|
Roy, CEO and CFO
|
2012
|
70,766
|
0
|
0
|
0
|
0
|
0
|
32,306
|
103,072
|
Employment Agreements
None.
Equity Compensation Plans
We do not maintain any equity compensation plans and we have not granted any stock options or stock appreciation rights or any awards under long-term incentive plans.
Pension Benefits
We do not sponsor any qualified or non-qualified defined benefit plans.
Nonqualified Deferred Compensation
We do not maintain any non-qualified defined contribution or deferred compensation plans.
DIRECTOR COMPENSATION
The following table summarizes compensation that our director and former directors earned during 2013 for services as members of our Board.
|
Name
|
Fees Earned or Paid in Cash ($)
|
Options Awards ($)
|
All Other Compensation ($)
|
Total ($)
|
|
Yau Wai Hung
|
0
|
0
|
0
|
0
|
|
Kwong Kwan Yin Roy
|
0
|
0
|
0
|
0
|
|
Cheung Wai Kit
|
0
|
0
|
0
|
0
|
|
Chan Wing Hing
|
0
|
0
|
0
|
0
|
|
Yum Ka Yan
|
0
|
0
|
0
|
0
|
The following table sets forth, as of April 11, 2014, certain information regarding beneficial ownership of our common stock by each person who is known by us to beneficially own more than 5% of our common stock. The table also identifies the stock ownership of each of our directors, our officer, and all directors and our officer as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.
Shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative securities are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
|
Name and Address of Beneficial Owner
|
Amount and
Nature of Beneficial
Ownership(1)
|
Percentage of
Outstanding
Common Stock(1)
|
|
Cheung Wai Kit, Former Director
|
0
|
0%
|
|
Chan Wing Hing, Former Director
|
0
|
0%
|
|
Kwong Kwan Yin Roy, Director and CEO
|
1,305,932
|
5.09%
|
|
Wong Wing Fung Charlie
|
19,000,000
|
74.05%
|
|
Yum Ka Yan, Director
|
0
|
0%
|
|
Yau Wai Hung, Former Director and Former CEO
|
4,546
|
0.02%
|
|
(1)
|
Based on 25,659,742 outstanding shares of common stock on April 11, 2014.
|
|
(2)
|
The business address for each of our officers and directors is Room 1902, 19/F., Kodak House II, 321 Java Road, North Point, Hong Kong.
|
Since January 1, 2013, there has not been any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeded $120,000 and in which any director, executive officer, holder of more than 5% of our Common Stock or any member of the immediate family of any of these persons had or will have a direct or indirect material interest.
Director Independence
As of December 31, 2013, and currently, our directors are not “independent directors” within the meaning of Rule 121(A) of the American Stock Exchange Company Guide and Rule 10A-3 promulgated under the Securities Act of 1934, as amended.
On March 26, 2014, we dismissed Albert Wong & Co CPA, Inc. (“Wong”) as our independent registered public accounting firm, and appointed DKM Certified Public Accountants (“DKM”), as disclosed on our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 27, 2014. The above decision was approved by our Board of Directors. During our fiscal years ended December 31, 2012, 2013 and through April 11, 2014, we did not consult with both DKM and Wong on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on our financial statements, and they did not provide either a written report or oral advice to us that was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
We paid the following fees to its auditors during our fiscal years ended December 31, 2013 and 2012:
|
Fee Category
|
2013
|
2012
|
||||||
|
Audit fees –DKM
|
$ | 25,000 | - | |||||
|
Audit fees –Wong
|
- | $ | 13,000 | |||||
Audit Related Fees
We did not incur any audit-related fees with DKM and Wong for the years ended December 31, 2013, and 2012.
Tax Fees
We did not incur any tax fees with DKM and Wong for the years ended December 31, 2013 and 2012.
All Other Fees
We incurred $5,400 service fees from Wong in 2013 and $4,500 service fees from Madsen & Associates CPA, Inc. in 2012 separately.
Pre-Approval of Services
The Board of Director’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The Board may also pre-approve particular services on a case-by-case basis.
(a)(1) Financial Statements
An index to Consolidated Financial Statements appears on page F-1.
(b) Exhibits
The following Exhibits are filed as part of this report:
|
Exhibit No.
|
Description
|
|
3.1
|
Article of Amendment to Articles of Incorporation
|
|
31.1
|
Certification of the Principal Executive Officer pursuant to Rule 13-14(a) of the Securities Exchange of 1934
|
|
31.2
|
Certification of the Acting Principal Accounting Officer and Principal Financial Officer pursuant to Rule 13-14(a) of the Securities Exchange of 1934
|
|
32.1
|
Certificate of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certificate of the Acting Principal Accounting Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
GREAT CHINA MANIA HOLDINGS, INC
|
||
|
April 11, 2014
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
Name:
|
Kwong Kwan Yin Roy
|
|
|
Title:
|
Chief Executive Officer and Director
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
April 11, 2014
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
|
Name:
|
Kwong Kwan Yin Roy
|
||
|
Title:
|
Chief Executive Officer and Director
|
||
|
April 11, 2014
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
|
Name:
|
Kwong Kwan Yin Roy
|
||
|
Title:
|
Chief Financial Officer and Director
|
||
32
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
INDEX
|
Page
|
||
|
Report of Independent Registered Public Accounting Firm
|
F–2
|
|
|
Consolidated Balance Sheets
|
F–4
|
|
|
Consolidated Statements of Operations
|
F–5
|
|
|
Consolidated Statements of Changes in Stockholders’ Deficit
|
F–6
|
|
|
Consolidated Statements of Cash Flows
|
F–7
|
|
|
Notes to Consolidated Financial Statements
|
F–8
|
F-1
2451 N. McMullen Booth Road
Suite.308
Clearwater, FL 33759
Toll fee: 855.334.0934
Fax: 800.581.1908
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Great China Mania Holdings, Inc.
We have audited the accompanying balance sheet of Great China Mania Holdings, Inc. as of December 31, 2013, and the related statement of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements as of and for December 31, 2012 were audited by another firm which issued an unqualified opinion on the statements on March 27, 2013.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Great China Mania Holdings, Inc. as of December 31, 2013 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has significant net losses and cash flow deficiencies. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are described in Note 17. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DKM Certified Public Accountants
DKM Certified Public Accountants
Clearwater, Florida
April 11, 2014
F-2
|
ALBERT WONG & CO.
CERTIFIED PUBLIC ACCOUNTANTS
7th Floor, Nan Dao Commercial Building
359-361 Queen’s Road Central
Hong Kong
Tel : 2851 7954
Fax: 2545 4086
ALBERT WONG
B.Soc., Sc., ACA., LL.B., C.P.A.(Practising)
|
To the Board of Directors and Shareholders of Great China Mania Holdings, Inc. and subsidiaries
Hong Kong
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 2 and Note 3, the consolidated balance sheet of Great China Mania Holdings, Inc. and subsidiaries (the Company) as of December 31, 2012, and the related consolidated statements of operations, stockholders’ deficit and comprehensive income and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 included in the Company’s Item 9A “Controls and Procedures” in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial statements of the Company as of December 31, 2012 and for the year then ended, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 2 and Note 3, present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 2 and Note 3, and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by DKM Certified Public Accountants.
The accompanying consolidated financial statements as of and for the year ended December 31, 2012 had been prepared assuming that the Company will continue as a going concern. As discussed in Note 17 to the consolidated financial statements, the Company continuously has suffered recurring losses from operations and has a significant accumulated deficit. On the other hand, the Company experience negative cash flows from operations for the year ended December 31, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements as of and for the year ended December 31, 2012 do not include any adjustments that might result from the outcome of this uncertainty.
/s/Albert Wong & Co. CPA
Albert Wong & Co. CPA
April 11, 2014
Hong Kong, China
F-3
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2013
|
2013
|
2012
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 640,383 | 218,773 | |||||
|
Accounts receivable
|
288,195 | 353,122 | ||||||
| Inventories | - | 10,438 | ||||||
|
Short term loan receivable
|
113,883 | 140,495 | ||||||
|
Deposits, prepaid expenses and other receivables
|
185,235 | 165,932 | ||||||
|
Asset held for disposal
|
495,000 | - | ||||||
|
Total current assets
|
1,722,696 | 888,760 | ||||||
|
Property, plant and equipment
|
- | - | ||||||
|
Other assets
|
115,380 | - | ||||||
|
TOTAL ASSETS
|
$ | 1,838,076 | $ | 888,760 | ||||
|
LIABILITIES AND EQUITY
|
||||||||
|
LIABILITIES
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable
|
$ | 759,126 | $ | 997,911 | ||||
|
Accrued expenses and other payables
|
183,874 | 84,720 | ||||||
|
Unearned revenue
|
123,648 | 27,691 | ||||||
| Amount due to related parties | - | 38,128 | ||||||
|
Short-term borrowings
|
64,079 | 63,656 | ||||||
|
Convertible notes
|
99,351 | 168,926 | ||||||
|
Liabilities held by discontinued operations
|
- | - | ||||||
|
Total current liabilities
|
1,230,078 | 1,381,032 | ||||||
|
LONG-TERM LIABILITIES
|
||||||||
|
Convertible note
|
31,301 | 31,301 | ||||||
| 31,301 | 31,301 | |||||||
|
TOTAL LIABILITIES
|
$ | 1,261,379 | $ | 1,412,333 | ||||
|
SHAREHOLDERS’ EQUITY
|
||||||||
|
Common stock, Par value $0.01; 375,000,000 shares authorized; 5,619,926 and 3,943,801 shares issued and outstanding as of December 31, 2013 and 2012, respectively
|
$ | 56,199 | $ | 39,438 | ||||
|
Additional paid in capital
|
9,909,359 | 8,389,941 | ||||||
|
Accumulated deficits
|
(9,390,353 | ) | (8,457,669 | ) | ||||
|
Accumulated other comprehensive income
|
1,492 | 1,492 | ||||||
|
Less: Subscription receivable
|
- | (496,775 | ) | |||||
|
TOTALSHAREHOLDERS’ EQUITY
|
$ | 576,697 | $ | (523,573 | ) | |||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 1,838,076 | $ | 888,760 | ||||
See accompanying notes to consolidated financial statements
F-4
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 2013
|
2013
|
2012
|
|||||||
|
CONTINUING OPERATIONS
|
||||||||
|
REVENUES
|
$ | 2,310,329 | $ | 1,931,005 | ||||
|
COST OF SALES
|
1,562,252 | 1,282,555 | ||||||
|
GROSS PROFIT
|
748,077 | 648,450 | ||||||
|
EXPENSES
|
||||||||
|
Sales & marketing expenses
|
51,330 | 43,182 | ||||||
|
General and administrative expenses
|
1,648,016 | 986,138 | ||||||
|
Loss on impairment of assets
|
15,000 | - | ||||||
| 1,714,346 | 1,029,320 | |||||||
|
LOSS FROM CONTINUING OPERATIONS
|
(966,269 | ) | (380,870 | ) | ||||
|
OTHER INCOME/(EXPENSE)
|
||||||||
|
Interest income
|
3,008 | 12,682 | ||||||
|
Interest expenses
|
(102,564 | ) | (54,116 | ) | ||||
|
Other income
|
22,238 | 6,167 | ||||||
|
Other expenses
|
(84,780 | ) | (14,760 | ) | ||||
| (162,098 | ) | (50,027 | ) | |||||
|
NET LOSS BEFORE PROVISION FOR INCOME TAXES
|
(1,128,367 | ) | (430,897 | ) | ||||
|
PROVISION FOR INCOME TAXES
|
- | - | ||||||
|
NET LOSS FROM CONTINUING OPERATIONS
|
$ | (1,128,367 | ) | $ | (430,897 | ) | ||
|
DISCONTINUED OPERATIONS
|
||||||||
|
Net loss from discontinued operations
|
(477,244 | ) | (103,590 | ) | ||||
|
Gain on disposal of discontinued operations
|
672,927 | - | ||||||
|
NET INCOME FROM DISCONTINUED OPERATIONS
|
195,683 | (103,590 | ) | |||||
|
NET LOSS FOR THE YEAR
|
$ | (932,684 | ) | $ | (534,487 | ) | ||
|
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR
|
||||||||
|
- Arising from continuing operations
|
(1,128,367 | ) | (430,897 | ) | ||||
|
- Arising from discontinued operations
|
195,683 | (103,590 | ) | |||||
| $ | (932,684 | ) | $ | (534,487 | ) | |||
|
BASIC LOSSPER SHARE–
|
||||||||
|
- Arising from continuing operations
|
(0.24 | ) | (0.13 | ) | ||||
|
- Arising from discontinued operations
|
0.04 | (0.03 | ) | |||||
| $ | (0.20 | ) | $ | (0.16 | ) | |||
|
DILUTED LOSSPER SHARE
|
||||||||
|
- Arising from continuing operations
|
(0.24 | ) | (0.13 | ) | ||||
|
- Arising from discontinued operations
|
0.04 | (0.03 | ) | |||||
| $ | (0.20 | ) | $ | (0.16 | ) | |||
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
||||||||
|
Basic
|
4,562,360 | 3,442,672 | ||||||
|
Diluted
|
4,562,360 | 3,442,672 | ||||||
See accompanying notes to consolidated financial statements
F-5
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
Year ended December 31, 2013
|
Common Stock
|
Additional
paid in
capital
|
(Accumulated deficits)/ retained earnings
|
Accumulated other comprehensive income
|
Subscription receivable
|
Total
equity
|
|||||||||||||||||||||||
|
Number
of shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance at January 1, 2012
|
1,418,300 | $ | 14,183 | $ | 7,311,563 | $ | (7,923,182 | ) | $ | 1,492 | - | $ | (595,944 | ) | ||||||||||||||
|
Comprehensive loss
|
||||||||||||||||||||||||||||
|
- Net loss for the year
|
- | - | - | (534,487 | ) | - | - | (534,487 | ) | |||||||||||||||||||
| - | - | - | (534,487 | ) | - | - | (534,487 | ) | ||||||||||||||||||||
|
Share-based payment
|
115,000 | 1,150 | 228,850 | - | - | - | 230,000 | |||||||||||||||||||||
|
Settlement of debt to shares
|
959,750 | 9,598 | 324,145 | - | - | - | 333,743 | |||||||||||||||||||||
|
Settlement of convertible note to shares
|
25,751 | 257 | 20,433 | 20,690 | ||||||||||||||||||||||||
|
Issue of shares
|
1,425,000 | 14,250 | 504,950 | (496,775 | ) | 22,425 | ||||||||||||||||||||||
|
Balance at December 31, 2012 and January 1, 2013
|
3,943,801 | 39,438 | 8,389,941 | (8,457,669 | ) | 1,492 | (496,775 | ) | (523,573 | ) | ||||||||||||||||||
|
Comprehensive loss from continuing operations
|
||||||||||||||||||||||||||||
|
Net loss for the year
|
- | - | - | (1,128,367 | ) | - | - | (1,128,367 | ) | |||||||||||||||||||
| - | - | - | (1,128,367 | ) | - | - | (1,128,367 | ) | ||||||||||||||||||||
|
Comprehensive loss from discontinued operations
|
||||||||||||||||||||||||||||
|
- Net loss for the year
|
- | - | - | (477,244 | ) | - | - | (477,244 | ) | |||||||||||||||||||
|
- Foreign currency translation adjustments
|
- | - | - | - | - | - | - | |||||||||||||||||||||
|
- Gain on disposal
|
- | - | - | 672,927 | - | - | 672,927 | |||||||||||||||||||||
| - | - | - | 195,683 | - | - | 195,683 | ||||||||||||||||||||||
|
Settlement of subscription receivables
|
- | - | - | - | - | 496,775 | 496,775 | |||||||||||||||||||||
|
Share based payment
|
976,984 | 9,770 | 864,130 | - | - | - | 873,900 | |||||||||||||||||||||
|
Shares issued for acquisition of New Era
|
500,000 | 5,000 | 505,000 | 510,000 | ||||||||||||||||||||||||
|
Settlement of debt to shares
|
206,250 | 2,063 | 57,937 | - | - | - | 60,000 | |||||||||||||||||||||
|
Settlement of convertible note to shares
|
142,891 | 1,429 | 144,851 | - | - | - | 146,280 | |||||||||||||||||||||
|
Cancellation of shares
|
(150,000 | ) | (1,500 | ) | (52,500 | ) | - | - | - | (54,000 | ) | |||||||||||||||||
|
Balance at December 31, 2013
|
5,619,926 | 56,199 | 9,909,359 | (9,390,353 | ) | 1,492 | - | 576,697 | ||||||||||||||||||||
See accompanying notes to consolidated financial statements
F-6
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2013
|
2013
|
2012
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss continuing operating activities
|
$ | (1,128,367 | ) | $ | (430,897 | ) | ||
|
Adjustments to reconcile net income to net cash flows
used in operating activities for:
|
||||||||
|
Impairment loss of asset held for disposal
|
15,000 | - | ||||||
|
Amortization of discount on Convertible Notes
|
70,666 | 51,386 | ||||||
|
Accrued interest expense on Convertible Notes
|
31,898 | 2,730 | ||||||
|
Interest income receivable
|
(3,008 | ) | (12,682 | ) | ||||
|
Share-based payments
|
833,900 | 230,000 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Increase in accounts receivable
|
(107,367 | ) | (19,501 | ) | ||||
|
Increase in prepaid expenses
|
(19,739 | ) | (24,679 | ) | ||||
|
Increase in unearned revenue
|
95,957 | 7,103 | ||||||
|
Increase in accounts payable
|
59,577 | 96,779 | ||||||
|
(Decrease)/increase in accrued expenses and other payables
|
174,359 | (9,227 | ) | |||||
|
Net cash used in continuing operating activities
|
22,876 | (108,988 | ) | |||||
|
Net cash used in discontinued operating activities
|
(370,745 | ) | 90,481 | |||||
|
Net cash used in operating activities
|
(347,869 | ) | (18,507 | ) | ||||
|
Cash flows from investing activities
|
||||||||
|
Cash flows from continuing investing activities
|
- | - | ||||||
|
Increase in other assets
|
(115,380 | ) | - | |||||
|
Repayment of short-term loan receivable
|
29,620 | - | ||||||
|
Net cash used in continuing investing activities
|
(85,760 | ) | - | |||||
|
Net cash used in discontinued investing activities
|
(1,282 | ) | - | |||||
|
Net cash used in investing activities
|
(87,042 | ) | - | |||||
|
Cash flows from financing activities
|
||||||||
|
Cash flows from continuing financing activities
|
||||||||
|
Issue of convertible note
|
100,000 | 135,500 | ||||||
|
Repayment of convertible note
|
(125,859 | ) | (96,899 | ) | ||||
|
Advance to short-term loan receivable
|
- | (127,813 | ) | |||||
|
Proceeds from short-term borrowings
|
57,690 | 121,624 | ||||||
|
Conversion of subscription receivable
|
496,775 | 22,425 | ||||||
|
Net cash (used in)/provided by continuing financing activities
|
528,606 | 54,837 | ||||||
|
Net cash provided by discontinued financing activities
|
327,915 | (122,769 | ) | |||||
|
Net cash (used in)/provided by financing activities
|
856,521 | (67,932 | ) | |||||
|
Net (decrease)/increase in cash and cash equivalents
|
||||||||
|
- Continuing operations
|
465,722 | (54,151 | ) | |||||
|
- Discontinued operations
|
(44,112 | ) | (32,288 | ) | ||||
| 421,610 | (86,439 | ) | ||||||
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
||||||||
|
- Continuing operations
|
- | - | ||||||
|
- Discontinued operations
|
- | - | ||||||
| - | - | |||||||
|
Cash and cash equivalents at beginning of year
|
||||||||
|
- Continuing operations
|
174,661 | 293,988 | ||||||
|
- Discontinued operations
|
44,112 | 11,224 | ||||||
| 218,773 | 305,212 | |||||||
|
Cash and cash equivalents at end of year
|
||||||||
|
- Continuing operations
|
640,383 | 174,661 | ||||||
|
- Discontinued operations
|
- | 44,112 | ||||||
| $ | 640,383 | $ | 218,773 | |||||
|
Non-cash financing activities
|
||||||||
|
- Issue of shares unpaid
|
- | 496,775 | ||||||
|
- Shares issued for acquisition of New Era
|
510,000 | - | ||||||
|
- Conversion of note to shares
|
146,280 | 20,690 | ||||||
|
- Conversion of debt to shares
|
60,000 | 333,743 | ||||||
|
- Cash paid for interest
|
$ | 40,359 | $ | - | ||||
|
- Cash paid for income taxes
|
- | - | ||||||
See accompanying notes to consolidated financial statements
F-7
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2013
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Great China Mania Holdings, Inc. (“GMEC” or the “Company”) was incorporated in Florida on July 8, 1983. In February 2011, three subsidiaries of the Company were formed in Hong Kong and have since maintained operations. These subsidiaries are GME Holdings Limited (“GMEH”), Great China Games Limited (“GCG”) and Great China Media Limited (“GCM”). In June 2011, the Company formed another subsidiary GMEC Ventures Limited (“GMEV”) in Hong Kong. The company held those subsidiaries though two wholly-owned BVI companies known as Sharp Achieve Holdings Limited (“Sharp Achieve”) and Super China Global Limited (SCGL).
On March 16, 2011, the Company amended its Articles of Incorporation and changed the name of the Company from “Great East Bottles & Drinks (China) Holdings, Inc.” to “Great China Mania Holdings, Inc.”
On April 23, 2013, the Company disposed the entire interest in GCG to a non affiliate shareholder in exchange of the shareholder assuming the liabilities of GCG and returning 150,000 shares of the Company common stock back to the Company.
On May 6, 2013, the Company disposed the entire interest in Sharp Achieve and GCM to Mr. Yau Wai Hung, a former CEO and director who resigned on April 30 2013, in exchange of his assuming the liabilities of both Sharp Achieve and GCM.
After the above disposals, the Company only specializes in artist and project management services operation in Hong Kong, China and the Asia-Pacific region.
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and the Company’s subsidiaries. The consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America, and all significant intercompany balances and transactions have been eliminated.
The functional currency for the majority of the Company’s continuing and discontinued operations is the Hong Kong Dollar (“HKD”), while the reporting currency is the US Dollar.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of December 31, 2013, the results of its operations and cash flows for the year ended for December 31, 2013 and 2012.
In the opinion of the management, the comparative figures for the year ended December 31, 2012 were reclassified to current presentation because the balances shown in previous filings included the discontinued operations of GCG and GCM were not relevant to the current operations.
NOTE 3 – DISPOSAL OF SUBSIDIARIES
On April 23, 2013, the Company disposed its entire interest of GCG to a non affiliate shareholder in exchange of the shareholder assuming the liabilities of GCG and returning 150,000 shares of the Company common stock back to the Company. GCG ceased to become a consolidating subsidiary of the Company on May 6, 2013 when the transaction completed. All the operating losses of GCG from January 1, 2012 to April 23, 2013 are recorded as net loss from discontinued operations.
On May 6, 2013, the Company disposed its entire interest of Sharp Achieve and GCM to Mr. Yau Wai Hung, our former CEO and director who resigned on April 30 2013, in exchange for his assuming the liabilities of both Sharp Achieve and GCM. GCM ceased to become a consolidating subsidiary of the Company on the same date. All the operating losses of GCM from January 1, 2012 to May 6, 2013 are recorded as net loss from discontinued operations.
By disposal of above subsidiaries, the Company sold its video games and accessories retail operation and magazine and related electronic content publishing operation. A summary of the balance sheet, income statement and gain on disposal of above subsidiaries upon the date of disposal is presented as follow:
F-8
(i) Summary of balance sheet
|
May 6, 2013 (Date of disposal)
|
December 31, 2012 (Audited)
|
|||||||||||||||||||||||
|
GCG
|
GCM
|
Total
|
GCG
|
GCM
|
Total
|
|||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | - | $ | 1,282 | $ | 1,282 | $ | 38,343 | $ | 5,769 | $ | 44,112 | ||||||||||||
|
Accounts receivable
|
- | 33,101 | 33,101 | - | 172,294 | 172,294 | ||||||||||||||||||
|
Inventory
|
3,643 | - | 3,643 | 3,643 | 6,795 | 10,438 | ||||||||||||||||||
|
Other receivables and deposit
|
- | - | - | 436 | - | 436 | ||||||||||||||||||
|
Total current assets
|
3,643 | 34,383 | 38,026 | 42,422 | 184,858 | 227,280 | ||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
- | - | - | 2,325 | 296,037 | 298,362 | ||||||||||||||||||
|
Accrued expenses and other payables
|
- | 681,676 | 681,676 | 2,327 | 74,137 | 76,464 | ||||||||||||||||||
|
Total current liabilities
|
- | 681,676 | 681,676 | 4,652 | 370,174 | 374,826 | ||||||||||||||||||
|
Net assets / (liabilities)
|
3,643 | (647,293 | ) | (643,650 | ) | 37,770 | (185,316 | ) | (147,546 | ) | ||||||||||||||
(ii)Summary of income statement
|
2013
|
2012
|
|||||||||||||||||||||||
|
GCG
|
GCM
|
Total
|
GCG
|
GCM
|
Total
|
|||||||||||||||||||
|
Revenue
|
- | 15,233 | 15,233 | 643,473 | 2,238,117 | 2,881,590 | ||||||||||||||||||
|
Gross margin
|
- | 1,910 | 1,910 | 49,655 | 762,391 | 812,046 | ||||||||||||||||||
|
Loss before provision for income taxes
|
(4,091 | ) | (473,153 | ) | (477,244 | ) | (51,860 | ) | (51,730 | ) | (103,590 | ) | ||||||||||||
|
Net loss after non-controlling interest
|
(4,091 | ) | (473,153 | ) | (477,244 | ) | (51,860 | ) | (51,730 | ) | (103,590 | ) | ||||||||||||
(iii)Summary of gain on disposal
|
GCG
|
GCM
|
Total
|
||||||||||
|
Net (assets) / liabilities of the subsidiaries
|
(3,643 | ) | 647,293 | 643,650 | ||||||||
|
Amount due from/(to) the subsidiaries
|
133,277 | (50,000 | ) | 83,277 | ||||||||
|
Less: Fair value of the shares received
|
(54,000 | ) | - | (54,000 | ) | |||||||
|
Net gain of the disposal
|
75,634 | 597,293 | 672,927 | |||||||||
NOTE 4– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Economic and political risk
The Company’s continuing operations and discontinued operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in the Hong Kong may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the Hong Kong are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
(b)Cash and cash equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s continued operations maintain bank accounts in Hong Kong and China. The Company’s discontinued operations maintain bank accounts in Hong Kong.
(c)Income tax
Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
F-9
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, no benefit is recognized
In accordance with the relevant tax laws and regulations of Hong Kong, the applicable corporation income tax rate was 16.5% on assessable profits, if any, for the years ended December 31, 2013 and 2012, respectively.
(d)Fair value of financial instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, amount due from a related company, prepaid expenses and accounts receivables, other receivables, accounts payable, accrued expenses and other payables, unearned revenue, short term borrowings, convertible note and amount due to related parties.
The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
As of the year-end dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective year ends.
(e)Long-Lived Assets
Property and equipment is stated at cost. Depreciation is computed by the straight-line method over estimated useful lives (2-7 years). Intellectual property assets are stated at their fair value acquisition cost. Amortization of intellectual property assets is calculated by the straight line method over their estimated useful lives. Historical costs are reviewed and evaluated for their net realizable value of the assets. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment existed at December 31, 2013.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
(f)Revenue recognition
Revenue represents the invoiced value of goods sold or services rendered during the year, net of sales discounts and returns. Generally revenue is recognized when all of the following criteria are met:
|
-
|
Persuasive evidence of an arrangement exists,
|
|
-
|
Delivery has occurred or services have been rendered,
|
|
-
|
The seller’s price to the buyer is fixed or determinable, and
|
|
-
|
Collectability is reasonably assured
|
Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
|
(i)
|
Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered.
|
|
(ii)
|
Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined agreements.
|
|
(iii)
|
Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.
|
F-10
For discontinued operations, the Company recognizes revenue when the following criteria are met:
|
(i)
|
Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers.
|
|
(ii)
|
Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales return.
|
|
(iii)
|
Revenue from the provision of advertising services is recognized when services are rendered.
|
|
(iv)
|
Revenue from retail sales of video games and accessories is recognized upon delivery of goods to customers.
|
(g)Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the years ended December 31, 2013, there are a total of 99,371 shares of common stock included in the calculation of diluted weighted average number of shares outstanding. They are not included in the calculation of diluted (loss) / earnings per share because they are considered anti dilutive when computing diluted (loss) / earnings per share.
(h)Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.
(i)Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation gain, net of tax.
(j)Foreign currency translation
The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Hong Kong Dollar (HK$). Capital accounts of the consolidated financial statements are translated into United States dollars from HK$ at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:
|
December 31, 2013
|
December 31, 2012
|
|||||||
|
Year end HK$ : US$ exchange rate
|
0.1282 | 0.1282 | ||||||
|
Average period/yearly HK$ : US$ exchange rate
|
0.1282 | 0.1282 | ||||||
This translation rates are referenced to the linked rate of HK$ and US$ guaranteed by Government of Hong Kong.
(k)Stock-based compensation
The Company recognizes compensation expense for all stock-based payment awards made to employees, contractors and non-employee directors. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
During the year ended December 31, 2013, the Company issued 147,684 shares in aggregate for services rendered to the Company. The fair value of $833,900, which is determined with refer to closing stock price on the dates of issue, was charged to operation as general and administrative expenses for the year then ended.
F-11
During the year ended December 31, 2012, the Company issued 115,000 shares in aggregate for services rendered to the Company. The fair value of $230,000, which is determined with refer to closing stock price on the dates of issue, was charged to operation as general and administrative expenses for the year then ended.
(l) Recent accounting pronouncements
The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2013. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2013 through the date these financial statements were issued.
NOTE 5 – SHORT TERM LOAN RECEIVABLE
The Company retained a short term loan amount of $113,883 and $140,495 to a third party company at 6% interest per annum with no fixed payment terms as to December 31, 2013 and 2012 separately. Interest income in conjunction with this short term loan for the year ended December 31, 2013 and 2012 was $3,008 and $12,682, respectively.
NOTE 6 –DEPOSITS, PREPAID EXPENSES AND OTHER RECEIVABLES
As of the year-end dates, the Company’s deposits, prepaid expenses and other receivables accrued expenses and other payables are summarized as follows:
|
2013
|
2012
|
|||||||
|
Prepaid expenses
|
108,779 | 116,648 | ||||||
|
Other receivables
|
70,665 | 45,663 | ||||||
|
Deposits paid
|
5,791 | 3,621 | ||||||
|
Total deposits, prepaid expenses and other receivables
|
$ | 185,235 | $ | 165,932 | ||||
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
As of the year-end dates, the Company’s property, plant and equipment are summarized as follows:
|
2013
|
2012
|
|||||||
|
At cost:
|
||||||||
|
Computer
|
9,989 | - | ||||||
|
Less: Accumulated depreciation
|
9,989 | - | ||||||
|
Property, plant and equipment, net
|
$ | - | $ | - | ||||
Depreciation expense attributable to the property, plant and equipment of both continuing operations and discontinued operations for the years ended December 31, 2013 and 2012 was $9,989 and $0, respectively.
NOTE 8 – OTHER ASSET
The Company acquired a 4.5% entity interest of a restaurant that operated in Hong Kong by a non affiliate corporation with a cash consideration of $115,380 on September 25, 2013. This entity interest stated at cost and no impairment losses was recognized for the years ended December 31, 2013.
NOTE 9 – ACCRUED EXPENSES AND OTHER PAYABLES
As of the year-end dates, the Company’s accrued expenses and other payables are summarized as follows:
|
2013
|
2012
|
|||||||
|
Accrued expenses
|
144,508 | - | ||||||
|
Customer deposits received
|
39,366 | 84,720 | ||||||
|
Total Accrued expenses and other payables
|
$ | 183,874 | $ | 84,720 | ||||
F-12
NOTE 10 – AMOUNT DUE TO RELATED PARTIES
As of the year-end dates, the Company’s current accounts with relatted companies are summarized as follows:
|
2013
|
2012
|
|||||||
|
China Culture Limited (CCL)
|
- | 38,128 | ||||||
The amount due to CCL is a temporary advance to the Company for working capital purposes. The balance is unsecured, interest free and has no fixed repayment term. CCL is 100% owned by one of the Company's former directors.
NOTE 11 – SHORT-TERM BORROWINGS
As of the year-end dates, the Company’s short-term borrowings are summarized as follows:
|
2013
|
2012
|
|||||||
|
Balance as at January 1,
|
63,656 | 275,775 | ||||||
|
Proceeds from short-term borrowings
|
57,690 | 121,624 | ||||||
|
Reclassification for discontinued operations
|
2,733 | - | ||||||
|
Conversion of debt to shares
|
(60,000 | ) | (333,743 | ) | ||||
|
Total Accrued expenses and other payables
|
$ | 64,079 | 63,656 | |||||
The short-term borrowings are unsecured, interest free advances from one (2012: three) non affiliate individual(s) with no fixed repayment term. During the years ended December 31, 2013, those individuals converted a portion of the short term borrowings of $60,000 into 206,250 shares of Company’s common stock.
NOTE 12 – CONVERTIBLE NOTES
On June 1, 2011, the Company issued a non-interest bearing convertible note in the amount of $256,400 ( “Note 1”) to a third party note holder (“Holder 1”),which matures on May 31, 2016. On September 30, 2011, the first installment of $128,200 was received. Note 1 bears a call back option exercisable by Holder 1 on the unused portion of Note 1 after 12 months from the date of Note 1. Note 1 can be converted into common stock of the Company by Holder 1 under certain conditions. During the year, a total of $0 was repaid by the Company. As of December 31, 2013, Note 1 did not qualify to be converted under those conditions and is therefore not dilutive.
On February 20, 2013, the Company issued another 12% convertible note in the amount of $50,000 (“Note 5”) to another third party note holder (“Holder 3”). Note 5 mature on November 20, 2013 and was fully received on March 4, 2013. The outstanding principal balance plus any accrued interest under Note 5 is convertible into common stock of the Company after 180 days from the date of issued with a 40% discount over the convertible price upon the option of Holder 3. The conversion price is determined by the average of the lowest 3 closing bid prices out of the 10 days prior to the Conversion Date. As of December 31, 2013, fair value adjustment on option amounted to $35,333 and unamortized debt discount amount to $0. Debt discount is being amortized using effective interest method over the life of Note 5. For the year ended December 31, 2013, the amortization of debt discount of $35,333 was charged to Statement of Operations. Accrued interest expense of Note 5 for the year ended December 30, 2013 was $3,000. On September 10, 2013, part of the note of $7,415 was converted into 8,000 shares of common stock by the holder. On October 2, 2013, part of the note of $42,586 was converted into 53,769 shares of common stock by the holder. The gross outstanding balance of Note 5 at December 31, 2013 was $11,018 after deducting the partial settlement of $77,315 by shares. As of December 31, 2013, Note 5 qualified to be converted 11,038 shares of common stock under the conditions of Note 5 and is therefore dilutive.
On April 22, 2013, the Company issued another 12% convertible note in the amount of $50,000 (“Note 6”) to Holder 3. Note 6 mature on January 22, 2014 and was fully received on June 14, 2013. The outstanding principal balance plus any accrued interest under Note 6 is convertible into common stock of the Company after 180 days from the date of issued with a 40% discount over the convertible price upon the option of Holder 3. The conversion price is determined by the average prices of the 5 days prior to the Conversion Date. As of December 31, 2013, fair value adjustment on option amounted to $35,333 and unamortized debt discount amount to $0. Debt discount is being amortized using effective interest method over the life of Note 6. For the year ended December 31, 2013, the amortization of debt discount of $35,333 was charged to Statement of Operations. Accrued interest expense of Note 6 for the year ended December 30, 2013 was $3,000. As of December 31, 2013, Note 6 qualified to be converted 88,333 shares of common stock under the conditions of Note 6 and is therefore dilutive.
Total interest expense in connection with Note 2, Note 3 and Note 4 for the year ended December 31, 2013 and 2012 were $25,898 and $54,116, respectively. Total interest expenses in connection with all Convertible Notes for the year ended December 31, 2013 and 2012 amounted to $102,564 and $54,116 respectively.
F-13
The convertible notes as of the year-end dates are summarized as follows:
|
2013
|
2012
|
|||||||
|
Noncurrent liabilities:
|
||||||||
|
Non-interest bearing convertible note
|
$ | 31,301 | $ | 31,301 | ||||
|
Current liabilities:
|
||||||||
|
8% convertible note 2, net
|
- | 68,965 | ||||||
|
8% convertible note 3, net
|
- | 42,524 | ||||||
|
8% convertible note 4, net
|
- | 57,437 | ||||||
|
12% convertible note 5, net (including fair value adjustment on option $ 35,333, accrued interest expense $3,000)
|
11,018 | - | ||||||
|
12% convertible note 6, net (including fair value adjustment on option $ 35,333, accrued interest expense $3,000)
|
88,333 | - | ||||||
| 99,351 | 168,926 | |||||||
|
Total convertible note outstanding
|
$ | 130,652 | $ | 200,227 | ||||
NOTE 13 – EQUITY
On January 2, 2013 the Company issued 34,247 shares of common stock to a convertible note holder for partial settlement of a convertible note totaling $20,000.
On January 14, 2013 the Company issued 31,250 shares of common stock to a convertible note holder for partial settlement of a convertible note totaling $15,000.
On January 18, 2013 the Company issued 15,625 shares of common stock to a convertible note holder for partial settlement of a convertible note totaling $5,000.
On April 9, 2013 the Company converted $23,000 short-term borrowings into115,000 shares of common stock of the Company.
On April 23, 2013, the Company cancelled 150,000 shares of common stock from a non-affiliate shareholder in exchange of disposing the entire interest of GCG.
On April 26, 2013, the Company issued to two consultants 350,000 shares of common stock in exchange for professional services rendered. Based on the share price of $0.32 per share on the grant date, the fair value of these issued shares was $112,000.
On April 30, 2013 the Company converted $12,000 short-term borrowings into 60,000 shares of common stock of the Company.
On May 7, 2013, the Company issued to two consultants 83,350 shares of common stock in exchange for professional services rendered. Based on the share price of $0.24 per share on the grant date, the fair value of these issued shares was $20,000.
On June 6, 2013, the Company converted $25,000 short-term borrowings into 31,250 shares of common stock of the Company.
On June 7, 2013, the Company issued to two consultants 14,493 shares of common stock in exchange for professional services rendered. Based on the share price of $1.38 per share on the grant date, the fair value of these issued shares was $20,000.
On September 3, 2013, the Company issued 25,000 shares to the Company’s previous legal counsel for prior legal services rendered. Based on the share price of $1.60 per share on the grant date, the fair value of these issued shares was $40,000.On the same day, the Company issued 34,700 shares to another consultant in exchange for professional services rendered. Based on the share price of $1.15 per share on the grant date, the fair value of these issued shares was $40,000.
On September 10, 2013, the Company issued 8,000 shares of common stock to a convertible note holder for partial settlement of a convertible note totaling $7,415.
On September 17, 2013, the Company issued to a consultant 12,500 shares of common stock in exchange for professional services rendered. Based on the share price of $1.60 per share on the grant date, the fair value of these issued shares was $20,000.
On September 25, 2013, the Company issued to two consultants 400,000 shares of common stock in exchange for professional services rendered. Based on the share price of $1.36 per share on the grant date, the fair value of these issued shares was $544,000.
F-14
On October 1, 2013, the Company also issued 25,000 shares of common stock to legal counsel for legal services rendered.
On October 2, 2013, the Company issued a total of 53,769 shares common stock to an investor in full settlement of a convertible note totaling $42,586.
On October 12, the Company issued 14,992 shares of common stock to a consultant for services rendered. Based on the share price of $1.34 per share on the grant date, the fair value of these issued shares was $20,000.
On November 26, 2013, the Company issued 500,000 shares of common stock pursuant to an Agreement with New Era Global Enterprises Limited.
On December 13, 2013, the Company issued to a consultant 16,949 shares of common stock in exchange for professional services rendered. Based on the share price of $1.18 per share on the grant date, the fair value of these issued shares was $20,000.
The calculation of weighted average number of shares for the year ended December 31, 2013is illustrated as follows:
|
2013
|
||||||||
|
Number
of shares
|
Weighted average
number of shares
|
|||||||
|
At January 1, 2013
|
3,943,801 | 3,943,801 | ||||||
|
Shares issued on January 2, 2013 for note conversion
|
34,247 | 34,153 | ||||||
|
Shares issued on January 14, 2013 for note conversion
|
31,250 | 30,137 | ||||||
|
Shares issued on January 18, 2013 for note conversion
|
15,625 | 14,897 | ||||||
|
Shares issued on April 9, 2013 for debt conversion
|
115,000 | 84,123 | ||||||
|
Share based payment made on April 26, 2013
|
350,000 | 242,603 | ||||||
|
Forfeiture of shares on April 23, 2013 for disposal of GCG
|
(150,000 | ) | (103,973 | ) | ||||
|
Shares issued on April 30, 2013 for debt conversion
|
60,000 | 40,438 | ||||||
|
Share based payment made on May 7, 2013
|
83,350 | 54,577 | ||||||
|
Shares issued on June 6, 2013 for debt conversion
|
31,250 | 17,894 | ||||||
|
Share based payment made on June 7, 2013
|
14,493 | 8,259 | ||||||
|
Share based payment made on September 3, 2013
|
25,000 | 8,219 | ||||||
|
Share based payment made on September 3, 2013
|
34,700 | 11,408 | ||||||
|
Shares issued on September 10, 2013 for note conversion
|
8,000 | 2,477 | ||||||
|
Share based payment made on September 17, 2013
|
12,500 | 3,630 | ||||||
|
Share based payment made on September 25, 2013
|
200,000 | 53,699 | ||||||
|
Share based payment made on October 1, 2013
|
200,000 | 53,699 | ||||||
|
Shares issued on October 2, 2013 for note conversion
|
53,769 | 13,406 | ||||||
|
Share based payment made on October 4, 2013
|
25,000 | 6,301 | ||||||
|
Share based payment made on October 12, 2013
|
14,992 | 3,327 | ||||||
|
Share based payment made on November 26, 2013
|
500,000 | 38,356 | ||||||
|
Share based payment made on December 12, 2013
|
16,949 | 929 | ||||||
|
At December 31, 2013
|
5,619,926 | 4,562,360 | ||||||
F-15
NOTE 14– RELATED PARTY TRANSACTION
In addition to the transactions detailed elsewhere in these financial statements, the Company and its subsidiaries entered into the following material transactions with the related parties for the year ended December 31, 2013:
|
2013
|
2012
|
|||||||
|
From discontinuing operations
|
||||||||
| China Culture Limited | ||||||||
| Rental charges paid by Company for offices premises | $ | 25,640 | $ | 92,305 | ||||
China Culture Limited is a related party as it is a company owned by Mr. Chan Wing Hing, a Company former director resigned on April 30, 2013.
In the opinion of directors, the above transaction was entered into by the company in the normal course of business.
NOTE 15– INTEREST EXPENSES
Interest expenses for the year ended December 31 2013 and 2012 are summarized as follows:
|
2013
|
2012
|
|||||||
|
Amortization on discount of convertible note
|
$ | 70,666 | $ | 51,386 | ||||
|
Accrued interest on convertible note
|
31,898 | 2,730 | ||||||
|
Total
|
$ | 102,564 | $ | 54,116 | ||||
NOTE 16– CONTINGENCIES AND COMMITMENTS
As of December 31, 2013, the expected annual lease payments under operating leases are as follows:
|
For the year ending December 31,
|
||||
|
2014
|
48,643 | |||
|
Total
|
48,643 | |||
NOTE 17- GOING CONCERN
As of December 31, 2013 the Company has accumulated deficits of $9,375,353, a positive working capital of $492,618, and also recorded a net loss from the continuing operations of $1,113,367 for the year then ended.
As of December 31, 2013 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
NOTE 18 - SUBSEQUENT EVENTS
On January 7, 2014, the Company executed a one-for-twenty (1:20) reverse stock split of the Company’s common stock. This change was approved by the Company’s shareholders on November 25, 2013.
On January 12, 2014, the Company issued 39,721 shares to an investor relations firm as compensation.
On January 14, 2014, the Company entered into a Purchase and Assignment Agreement (the “Agreement”) with C&M Film Workshop Limited (“C&M”) whereby C&M is the legal and beneficial owner of certain overseas movie and entertainment distribution agreements. According to the terms of the Agreement, C&M assigned the rights to distribute all movies purchased overseas to the Company in consideration of 20,000,000 shares of restricted common stock paid to Mr. Wong Wing Fung Charlie, C&M’s sole shareholder. As a result, he owned 78.06% of the issued and outstanding shares of the Company’s common stock and held as an officer or director of the Company on the date of this filing.
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